Yesterday, the EUR/GBP followed largely the intra-day movements of EUR/USD, but at the margin sterling again did slightly better, as it set a new low.
However, in a daily perspective, the price move was insignificant. EUR/GBP closed at 0.78529, marginally up from 0.7849 previously. The lower-than expected UK CPI was unable to leave its traces on the charts.

EUR/USD and EUR/GBP traded with a slight positive bias in early European trading. The lower-than-expected UK CPI had little impact, but when EUR/USD grinded lower, also EUR/GBP came off intra-day highs. As equity markets reacted disappointingly following the release of the headlines of Bernankeís speech, both EUR/USD and cable fell lower, but the euro was hit harder than sterling, which resulted in a new low in EUR/GBP at 0.7831. However, the disappointment was rapidly digested and riskier assets fought back. EUR/USD erased its losses and so did cable, but understandably, now it was the euro that outperformed sterling, pushing EUR/GBP back to opening levels. The session was insignificant in a broader perspective.

Today, the UK calendar contains the labor market data. We have no reasons to distance us from consensus that expects again slightly negative figures (+5K for the claims). The BoE Minutes are interesting as they will show the number of governors supporting the QE expansion by £50B and might give us more insight in their thinking.

The market surprise has been the strength of the GBP/USD trading close to the all important 1.57 number. The GBP has been able to build momentum against the dollar and just needs a bit of positive data to break through. Today, claimant count might be the push that is needed.

From a technical point of view, the EUR/GBP cross rate was captured in a consolidation pattern following a longstanding sell-off that started in February and ended Mid-May when the pair set a correction low at 0.7950. From there, a rebound/short squeeze kicked in. Continued trading above the 0.8100 area would call off the downside alert and improve the short-term picture. The pair tried several times to regain this area, but without sustainable results. Finally, EUR/GBP dropped below the 0.7950 range bottom. This break opens the way to the next high profile support, in the 0.77 area (Oct 2010 lows). The pair is oversold, suggesting that the decline might shift into a lower gear short-term.
The case for a rebound in EUR/GBP is technically slightly weaker, as yesterday there was still a near term low and in the EUR/USD the pair tested in vain this level for three consecutive sessions. Nevertheless, we stick to our view that the decline needs to be digested and oversold conditions worked off.